Volvo: Remaking the marque

The Financial Times, June 19, 2016

Under Geely, the carmaker is back in profit and selling well in China. But is it big enough to compete with its rivals?

There is nothing exceptional about the shiny grey chassis on display in western Sweden. Its wheels, suspension and engine are all where you would expect to find them. But it stands out because of what it represents: tangible evidence of progress in one of the most daring industrial stories of recent years.

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Known as compact modular architecture, it is a shared platform destined to underpin the small vehicles made by both Volvo Cars, the Swedish premium manufacturer, and its owner Geely, the Chinese mass-market brand. “This is a bridge between the two companies,” says Mats Fagerhag, head of the joint venture that created the platform. “Everything is nice words before you start a common project and face hard facts.”

Click here to read the full article at FT.com

Bill Russo’s quote:

“The most important thing [Geely] has done is to help Volvo become a China-centric company,” says Bill Russo, a Shanghai-based consultant. “Geely has shifted Volvo from being a marginally global company situated in Scandinavia to being a global one centred in China.”

Bill Russo to Chair Panel Discussion on the Internet of Vehicles at TechCrunch

Shanghai, China, June 27, 2016

Venue:
West Bund Art Center
2555 Longteng Ave, Xuhu

Time:  11:10-11:40am

The Big Data Behind the Internet of Vehicles

TechCrunch_Shanghai_2016___TechCrunch

The traditional automotive industry, where technology innovation has primarily been focused on powertrain and safety systems, must now contend with new forms of mobility services that are transforming the manner in which we experience the product.   The particular conditions of urbanization, an ever-expanding middle class population, pollution, and congestion are uniquely challenging in China, which may create opportunities for innovative new mobility solutions for China.

The conventional hardware-centric, sales-driven, asset-heavy and ownership-based business model with sporadic customer interactions is now competing with a connected, on-demand, and often personalized mobility experiences.  This new form of “connected mobility” is driving new technologies in the world of navigation, analytics, driver safety, driver assistance and information virtualization.

Innovations such as these, originating from both traditional OEMs and new mobility solutions platforms, many of whom are Chinese, could pave the way to a an entirely new business model for China’s auto industry.

Panel Members:

Dr. Markus Seidel, Vice President, BMW Group Technology Office China

Ms. Celine Le Cotonnec, Head of Connected Services, Digital and Mobility for PSA Peugeot Citroen China

Mr. Bevin Jacob, Head of Business Development, APAC, Continental Intelligent Transportation Systems

Moderated by:

Mr. Bill Russo, Managing Director, Gao Feng Advisory Company

SAIC, Alibaba to Mark Chinese Foray Into Connected Cars

Bloomberg News, June 1, 2016

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SAIC Motor Corp. is putting finishing touches to a sport utility vehicle that features software developed with Alibaba Group Holding Ltd., marking the first foray into the connected-car business by two of China’s biggest companies.

The model will be available from September and be the first of a new category of vehicles for the automaker that’s fully integrated to the internet, according to Gu Feng, SAIC’s financial controller. Among its functions, the Roewe RX5 SUV will be able to suggest alternative routes with road closures or traffic congestion, provide directions to the nearest gas station when fuel is running low, and deliver music to one’s tastes, the company said.

“Connected cars are the inevitable trend of the auto industry,” Gu said in a phone interview, declining to give a price for the new model. “We worked with Alibaba instead of Google or Apple because the latter looks at the car as a piece of hardware to install their software. If they are successful, in future they may just get a Ford or GM to produce cars for them, so we don’t see as much synergy in working with them.”

The connected car is the latest battleground for automakers and technology companies such as Google Inc. and Apple Inc. for digital revenue and control of the vehicle dashboard. Customer spending on such technologies will reach an estimated 40.3 billion euros ($45 billion) this year, with safety and autonomous driving functions the biggest categories, according to a study by Strategy&, a consulting group of PwC.

In choosing Alibaba’s Yun OS, SAIC is promoting a Chinese alternative to connectivity systems offered by Google’s Android Auto and Apple’s CarPlay. While Hyundai Motor Co. introduced Android Auto to its Sonata sedan last year and will roll it out to other models, Toyota Motor Corp. is involved in the open platform SmartDeviceLink championed by Ford Motor Co. and another initiative called MirrorLink.

“SAIC and Alibaba hope to grow the pie with services and even if they share it, it’s a bigger pie for both,” said Bill Russo, Shanghai-based managing director at Gao Feng Advisory Co. “The car is becoming the third space, after home and office, where people expect to be connected to the internet — and an increasing number of such collaborations are happening among traditional automakers and internet technology companies.”

Alibaba said it didn’t have additional comments on the collaboration with SAIC Motor.

Among its other plans, SAIC Motor is considering:

  • Listing some of the company’s units, such as its Chexiang.com platform, overseas with Hong Kong as the preferred market
  • Starting a second venture fund in Silicon Valley after investing the first $100 million on projects such as new-energy vehicles and electronic commerce
  • Building cars in India, possibly through acquiring existing plants
  • Selling left-hand drive cars to other European markets besides the U.K.
  • Building up its Hong Kong asset management unit over the next three to five years and issuing bonds

SAIC, which has manufacturing joint ventures with GM and Volkswagen AG, is seeking to boost deliveries of its own Roewe and MG brands and expand overseas even as it navigates the trend toward autonomous driving. The company’s sales have risen sevenfold in a decade to 5.9 million vehicles last year.

“The automobile is about to change fundamentally and it could run without an engine, gearbox, even a driver,” said Gu. “This is the most challenging moment for me and I feel the pressure every single day.”

Click here to read this story at bloomberg.com

How China Is Driving A Connected Mobility Revolution

Forbes Asia, May 8, 2016

Click here to read this article at Forbes.com

By Bill Russo

For the early part of the 21st century, China has been the growth engine of the global automotive industry. Despite a recent slowdown, China will surpass 25 million units in annual car sales in 2016 and has become the battleground for dominance of the global auto industry.

Several driving forces, which are particularly evident China, are disrupting the status quo of the automotive industry:

  • The unique context of China’s urban transportation challenge, the high rate of adoption of mobile device connectivity, combined with the rapid and aggressive introduction of alternative mobility solutions.
  • Disruptive new entrants into the mobility solutions competitive landscape, who draw insights about customers based on their online behaviors and mobility habits in order to offer a diverse pool of new revenue-generating solutions.

The confluence of these forces are changing the landscape of how mobility needs can be served in a rather fundamental way, touching off a wave of experimentation among both traditional automotive and new mobility solutions providers.

The Origins of Disruption

Disruptive business models typically originate from outside the core set of industry players.  Traditional Original Equipment Manufacturer (OEM) business models rely on selling products through an established business-to-consumer (B2C) channel, often through an intermediary sales partner that is either owned or franchised to represent the OEM brands in the marketplace.  Consumers pay to own the asset outright.

The entry point for disruption is through the “pay-per-use” service-based business model.  While this channel has existed for some time in the form of services managed through centralized professionally managed fleets (rental car companies, taxi and chauffeur services), digitally disruptive companies such as Uber, and China’s Yidao Yongche and Didi-Chuxing (created from a merger between rival mobility services from Alibaba and Tencent) have gained rapid and widespread market acceptance.

Once an entry point is established, these services-centric Information and Communications Technology (ICT) disruptors are able to leverage their big data and analytics capabilities to gain insight on consumers and their mobility patterns and behaviors. Essentially, these disruptors view connected mobility services as a natural extension of their ecosystem platform and are viewing the traditional services and perhaps even the OEM hardware business as a way of expanding their ecosystem.  Serving the “Mobility on Demand” market is merely the point of entry for an entire suite of Internet-based mobile connectivity services which may include navigation, route planning, e-commerce, vehicle repair and maintenance, usage based insurance, and other very lucrative “owner services” which are very important to today’s OEM business.

ICT disruptors are leveraging connected mobility services as a means to disintermediate the value chain of the automotive industry and capture a profitable services ecosystem.  OEMs are at risk of their business model being relegated to a high-risk, asset-intensive, commoditized, business-to-business (B2B) channel for delivering hardware to the profitable ecosystem of the mobility services providers.

Reimagining Personalized Mobility

The motivation for many ICT disruptors to invest and compete in this market is to unlock the services revenue that encircles each user.  It is not the mobility service itself that justifies the investment, but rather all the things that we (and our cars) do when mobile.  Making such experiences feel more and more “personalized” to our individual needs and lifestyles, which become apparent based on our mobility habits, will ensure the loyalty of the user to the service provider’s ecosystem.

ICT disruptors are leveraging their core value propositions to deliver a more personalized mobility solution.  These disruptors may not see the car industry as their destination, but are rather “travelling through mobility”.  They view mobility services as a channel for enrollment of users into their broader ecosystem-based platform offering a range of other services.  Chinese ICT disruptors aiming at this “personalized mobility” solutions space include LeEco, Future Mobility, and NextEV.

The table below offers a glimpse of how major Chinese players aim to leverage their core while expanding to and beyond mobility as a service.  Beyond manufacturing smart, connected, electric vehicles or building technology-enabled infotainment systems and mobility services, these visionary companies are reinventing the mobility experience as a whole.  Moreover, they are reimagining mobility as a transaction between a user and an ecosystem services provider, which stands in stark contrast with the traditional model of a transaction between an owner and a manufacturer.

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It is important to keep in mind that as cars become mobility service platforms, the technology on board will become more sophisticated and tailored to the individual end-user’s needs.  ICT disruptors may in fact decide to contract out the actual production of vehicles to an ecosystem partner, with an end-game of earning recurring revenue by providing car owners with data products and Internet services.  While some tech companies may profit from selling hardware, the main focus is on the services that flow through the hardware.

Disruptions typically originate from outside the traditional industry players, which is clearly illustrated in this case.  We are approaching an inflection point where the deployment of personalized mobility solutions will expand exponentially and thereby alter the competitive landscape and business models of several adjacent industries.

Conclusion

Over the past few years we have witnessed how ICT disruptors have pioneered new business models and are in the process reimagining mobility as a service.  The emergence of Chinese disruptive mobility solutions players such as Didi Chuxing and LeEco, with their innovative ecosystem-based strategic approach, offers clear evidence that something new is happening.  This, coupled with the Chinese government’s determination to push new-energy vehicles and build a sustainable transportation infrastructure, demonstrates the potential for China to become the major breeding ground for automotive innovation[1].

Tech disruptors including Apple AAPL +0.12%Google GOOGL +0.50%, LeEco, NextEV, and others may be garnering the most attention, but as we have observed, they are typically “travelling through mobility” as a means to enroll users into their broader service ecosystems.  On the opposite flank, traditional OEMs, who will not easily cede their over 100-year dominance in the auto industry, are pivoting into mobility services.

New players will inevitably join this emerging landscape of competition.  Alliances are also being formed among new and traditional players seeking to access complementary strengths and seize a competitive advantage.

The battle will likely be won by those who understand the true potential of connected mobility services and thereby deliver value to the user in the most personalized, convenient, comfortable, and cost-effective manner.  It is a battle where profits will be won by offering differentiated mobility-related services through a hardware platform that is most suited to the lifestyle of its end user.

Success will accrue to those companies that are best able to reimagine mobility in the context of a place like China:  where mobility needs are uniquely challenging, where innovative mobility experiments are being driven by entrepreneurial activity, and where dreams of exponential business growth become reality.

Follow me on twitter @billrusso

[1] China Drives the Future of Automotive Innovation, Gao Feng Viewpoint, by Bill Russo and Aloke Palsikar, October 2015

 

I am the Managing Director and the Automotive Practice leader at Gao Feng Advisory Company based in Shanghai.  With 15 years as an automotive executive, including over 11 years of experience in China and Asia, I have had the pleasure of working with multi-national and local Chinese firms in the formulation and implementation of their global market and product strategies. I was previously the Vice President of Chrysler North East Asia, responsible for the business operations for the Greater China and South Korea markets. In addition, I have 12 years of experience in the electronics and IT industry, having worked at IBM Corporation and Harman International.

The author is a Forbes contributor. The opinions expressed are those of the writer.

Chinese firms accelerate in race toward driverless future

AFP Newswires, April 23, 2016

 

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Chinese Internet giant LeECO Holdings Ltd unveils its internet electric battery driverless concept car ‘LeSEE’,  during a launch event in Beijing, on April 20, 2016

 

Beijing: Chinese manufacturers and internet giants are in hot pursuit of their US counterparts in the race to design driverless cars, but the route to market is still littered with potholes.

While Google has been working on autonomous vehicles for at least six years, with the likes of BMW, Volvo and Toyota in its wake, more recently Chinese businesses have entered the race, from internet search giant Baidu to manufacturer Changan.

Last week, ahead of the Beijing Auto Show opening on Monday, two self-driving Changan cars made a mountainous 2,000 kilometre (1,200 mile) journey from Chongqing in the southwest to the capital in the country’s first long-distance autonomous vehicle test.

Another Chinese internet giant, LeECO, is also venturing into autonomous technologies, unveiling Wednesday in Beijing an electric car that can park itself and be summoned to its owner’s location via smartphone.

And late last year Baidu tested China’s first locally designed driverless vehicle, a modified BMW, with a 30 kilometre ride through the streets of Beijing.

Despite China’s relatively late entry to the field, analysts believe the country could become a key market for driverless vehicles thanks to a more favourable regulatory and consumer environment.

The Boston Consulting Group (BCG) forecasts that global sales of driverless cars will reach 12 million by 2035, with more than a quarter sold in China.

Vehicles which automatically adjust their routes in response to real-time traffic information could solve chronic gridlock in China’s major cities, BCG’s Xavier Mosquet told AFP.

“If they believe this would ease traffic, Chinese authorities will do all they can to promote the development of this technology and then its use,” he said.

Robot taxis

Public concerns over the safety of driverless cars are far lower than elsewhere, according to a survey by Roland Berger consultants in 2015, which found 96 per cent of Chinese would consider an autonomous vehicle for almost all everyday driving, compared with 58 per cent of Americans and Germans.

In a country notorious for accidents, the promise of better safety through autonomous technologies could also be appealing.

The ultimate prize, say analysts, will be when mass transport firms such as taxi-hailing giant Uber, or its Chinese rival Didi, can deploy huge fleets of robot taxis.

“The real payoff for truly driverless technology will come when cars on the road are no longer owned by people, but are owned by fleet management services,” said Bill Russo, managing director of the consultancy firm Gao Feng.

“That’s where you want to think about taking the driver out of the equation. Mobility on demand is hugely popular here.”

In the Roland Berger survey, 51 per cent of Chinese car owners said they would prefer to use robot taxis rather than buy a new vehicle themselves, compared with 26 per cent of Americans.

With a ready market, China may soon become the top location for companies to refine driverless technology.

Swedish manufacturer Volvo, owned by China’s Geely since 2010, this month announced plans to test drive up to 100 of its vehicles on Chinese roads this year.

Changan, a partner of Ford, is set to roll out commercial autonomous vehicles for motorways from 2018, while mass production of driverless city cars is projected to begin in 2025.

‘Does the car choose?’

Baidu, meanwhile, says it will launch self-driving buses by 2018, which will operate on fixed routes in select cities in China.

Like Google, the internet giant already owns detailed road maps and has experience in electronic security, and a company spokeswoman told AFP it had had “very positive feedback” from the government.

But analysts are more cautious, predicting slow-moving autonomous vehicles will not appear in towns until at least 2020.

Production costs were still too high to make a robot taxi fleet viable, BCG’s Mosquet said.

“There are still many questions to be resolved” before fully autonomous vehicles can be put into public use, said Jeremy Carlson, a senior analyst for IHS.

He pointed to “chaotic traffic situations” on roads shared with cyclists and pedestrians, and less-than-adequate infrastructure.

Technology will be the first to see solutions, he said, but that still left regulation and issues around liability and insurance to be addressed.

For some, there are moral dilemmas as well.

“If you have someone jumping out in front of an autonomous car, does the car have to choose between killing that person, or swerving and crashing and killing the passenger?” asked Robin Zhu, senior analyst at Sanford C. Bernstein.

“If your car could choose to kill you, would you get in it?”

Read more at: http://phys.org/news/2016-04-chinese-firms-driverless-future.html#jCp

CCTV News Interview on Driverless Cars with Bill Russo

China Central Television’s China 24 Program, April 12, 2016

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On-air interview on the regulatory and infrastructural challenges associated with autonomous driving.

Lead-in story begins at 25:55 and Bill Russo comments start at 30:10

Questions discussed:

Q1:
As driverless cars getting more and more popular in China, is it really a safe and reliable way to travel around? Without drivers being in charge, the vehicles are controlled by an intelligent transportation control network. People may ask: what will happen if the network breaks down?

Q2:
From the perspectives of legal regulation and framework, to reach the ideal goal of autonomous driving in the future, what can we do about it?

View the program: China 24 04/12/2016 03:15 – CCTV News – CCTV.com English

Bill Russo Hosts Panel Discussion on Urbanization and Mobility

Beijing, China, March 30, 2016

IMG_1004.jpg Preview, Today at 6.25.21 PM

The Future Perfect Series: Urbanization and Mobility

Urbanization. A Growing Middle Class. Pollution. Grid Lock. How are these factors shaping mobility in China? What solutions are being developed to ease mobility in China? How do you see mobility impacting and shaping lives today and in the future?

Beijing Bookworm, in cooperation with Ford Motor Company, invites you to participate in a discussion with experts from across industries on the future of mobility in China and beyond. It will be an evening of learning, discussion and idea sharing.

Topics for discussion:

  • China’s rapid urbanization and innovative urban mobility solutions for Chinese megacities
  • China’s growing new middle class and new white space of urban mobility
  • China’s ambitions for a sustainable future

Mr. John Larsen, Mobility Director for Ford Motor Company in Asia Pacific

Dr. Hai Jiang, Associate Professor of Industrial Engineering at Tsinghua University

Dr. Kevin Mo, Managing Director of Climate and Sustainable Urbanization at The Paulson Institute.

Moderated by:

Mr. Bill Russo, Managing Director, Gao Feng Advisory Company

Click here to view a video recording of the panel discussion

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Reimagining Mobility in the China Context

Gao Feng Insights Report, February 2016

We are pleased to share with you our paper titled: Reimagining Mobility in the China Context. This article builds on the themes from our previous article titled Digital Disruption in China’s Automotive Industry, and offers a perspective at how the traditional value chain of the automotive industry is being fundamentally transformed by a new wave of “digital disruptors”.

Unlike traditional automotive OEMs and suppliers, these digital disruptors are leveraging mobile internet technology to present new and innovative “Connected Mobility” services to users, and in the process challenging the business model of the automotive industry. The century old hardware-centric business model of individual car ownership and product-based segmentation is transforming into a new form which leverages internet technology to deliver a broader range of services to address mobility needs.  Such changes are happening faster in China than in the rest of the world, where the size and scale of the urban population and the sheer numbers of mobile internet users are much greater than other markets.

In such an environment, China’s Internet giants (Baidu, Alibaba, Tencent) along with mobility disruptors such as LeEco and NextEV are vying to deliver an increasingly connected, electrified, smart and personalized mobility experience.  Coupled with the Chinese government’s regulatory push on new-energy vehicle adoption and sustainable transportation infrastructure, China has demonstrated strong potential to become the breeding ground for the Connected Mobility revolution.   As a result, Automotive OEM and supplier CEOs must learn to reimagine mobility in the China context in order to secure a strong position in this new competitive landscape.

We welcome your comments and feedback on our briefing paper or in general about our firm. We would be glad to meet you in person to share our data and perspectives in a fuller manner. Please let us know if you are interested in meeting and discussing directly how we can help you to operationalize these insights.

Thought leadership is core to what Gao Feng does. We will, from time to time, share with you our latest thinking on business and management, especially as it relates to China and China’s role in the world.

Best Regards,

Bill Russo
Managing Director, Gao Feng Advisory Company
bill.russo@gaofengadv.com

Edward Tse
Chairman and CEO, Gao Feng Advisory Company
edward.tse@gaofengadv.com

Tel: +86 10 5650 0676 (Beijing); +852 2588 3554 (Hong Kong); +86 21 5117 5853 (Shanghai)

Digital Disruption in China’s Automotive Industry

Gao Feng Insights Report, January 2016

We are pleased to share with you our paper titled: Digital Disruption in China’s Automotive Industry. Recent advances in mobile connectivity, big data and social networks have infiltrated the traditional automotive industry and are beginning to redraw the competitive landscape among traditional hardware companies and digital “disruptors”.

The traditional automotive industry, where technology innovation has primarily been focused on powertrain and safety systems, must now contend with new forms of mobility services that are transforming the business model of the auto industry. The conventional hardware-centric, sales-driven, asset-heavy, and ownership-based business model with sporadic customer interactions is being superseded by more connected, on-demand, cost-effective, personalized mobility services. This new form of “connected mobility” is driving new technologies in the areas of navigation, analytics, driver safety, driver assistance and information virtualization.

China’s automotive industry is at the forefront of digital disruption as this transformation is happening much faster in China than the rest of the world, and China will leapfrog to a new era of personalized and electrified mobility.  The unique context of China’s urban transportation challenge, the high rate of adoption of mobile device connectivity, combined with the rapid and aggressive introduction of alternative mobility and ownership concepts will compress the time needed to commercialize smart, connected car technology and related services.  These conditions may permit China to “leapfrog” to towards a new era of personalized and electrified mobility.

We welcome your comments and feedback on our briefing paper or in general about our firm. We would be glad to meet you in person to share our data and perspectives in a fuller manner. Please let us know if you are interested in meeting and discussing directly how we can help you to operationalize these insights.

Thought leadership is core to what Gao Feng does. We will, from time to time, share with you our latest thinking on business and management, especially as it relates to China and China’s role in the world.

Best Regards,

Bill Russo
Managing Director, Gao Feng Advisory Company
bill.russo@gaofengadv.com

Edward Tse
Chairman and CEO, Gao Feng Advisory Company
edward.tse@gaofengadv.com

Tel: +86 10 5650 0676 (Beijing); +852 2588 3554 (Hong Kong); +86 21 5117 5853 (Shanghai)

China Seen Laying Down $15 Billion Bet on Electric Vehicles

Bloomberg News, December 16, 2015

China to be `epicenter of electrification,’ analyst says

BYD, Zotye among biggest sellers of electric cars in China

China has found electric cars a tough sell even after lavishing consumers with subsidies and privileges. After almost certainly failing to meet a target to have half a million of such vehicles on its roads by year end, its next act is to achieve a 10-fold increase by the end of the decade.

The electric vehicles in service will fall about 26 percent short of its year-end target, according to estimates from the science ministry and state-backed auto association. To meet its 2020 goal of five million EVs, the government will speed up the construction of charging stations, reducing a major inconvenience for urban residents who don’t have personal garages to charge their cars.

“China will be the epicenter for electrification of the auto industry globally,” said Bill Russo, Shanghai-based managing director at Gao Feng Advisory Co., who estimates that China would have invested 100 billion yuan ($15.5 billion) by 2020 on new-energy vehicles.

President Xi Jinping has designated electric vehicles as a strategic initiative in a bid to upgrade the auto industry and create challengers to Toyota Motor Corp. and General Motors Co. The government is increasing spending after signs that the combination of research grants, consumer subsidies and infrastructure investments is starting to yield results. New-energy vehicle production surged fourfold to 279,200 units in the first 11 months, even as oil traded near levels last seen during the global financial crisis.

Local Winners

That has benefited automakers like BYD Co., Zoyte Auto and BAIC Motor Corp., which have led sales of electric cars. BYD, backed by Warren Buffett’s Berkshire Hathaway Inc., would have turned a loss in 2014 and this year if not for EV subsidies from the central government, according to Barclays Plc. Geely Automobile Holdings Ltd. said last month that it would target new-energy vehicles to make up 90 percent of sales by 2020.

The government incentives have lured consumers like Zhang Peng, 30, who decided to buy BAIC’s EV200 electric car after trying without success for two years to win a license plate in the bimonthly lottery held by the Beijing government. EVs are exempt from the ballot, which has worse odds than roulette.

Zhang also received 90,000 yuan in matching grants from the central and local governments, or almost half of the 208,922 yuan sticker price for BAIC’s EV200 electric car. The model costs about 7.5 yuan to run every 100 kilometers (62 miles), compared with an estimated 39 yuan for an equivalent gasoline-powered 1.6-liter Toyota Corolla, according to calculations based on the published fuel-economy rating and Beijing pump prices.

Battery Suppliers

The burgeoning demand has also helped battery suppliers such as South Korea’s Samsung SDI Co. and LG Chem Ltd., which supplies SAIC Motor Corp. and Chongqing Changan Automobile Co. Panasonic Corp. said it is considering building a car-battery factory in China to supply lithium-ion batteries.

Among local component makers, Wanxiang Qianchao Co. and Hunan Corun New Energy Co. have more than doubled in Shanghai trading this year as investors bet the surge in electric vehicle demand will boost demand. BYD has climbed 34 percent this year and Geely Automobile has surged 79 percent in Hong Kong trading, compared with the 8.4 percent decline in the benchmark Hang Seng Index.

Global automakers are beginning to get into the act. Volkswagen AG, the largest foreign carmaker by sales, has said it will introduce 15 locally produced new-energy vehicles in the next three to five years in the country. Ford Motor Co. said this month it’s investing $4.5 billion globally in electrified vehicles.

‘Foreigners Coming’

“In the initial stage it was mainly local automakers competing with each other in the electric-car segment, but now the foreign players are coming,” said Ouyang Minggao, director of the Tsinghua New Energy Vehicle Center. “All kinds of electric cars will be here soon, including plug-in hybrids, which will lead to very big challenges to local automakers.”

The Chinese government is not alone in setting aggressive targets for alternative-energy transportation. President Barack Obama in 2011 called for one million electrified vehicles in the U.S. by 2015, a target that the administration scaled back in March after low gasoline prices reduced the cost advantage of plug-in and hybrid vehicles.

China, though, has stood out in terms of the scale of the state’s financial support. The country has invested about 37 billion yuan into the new-energy vehicle segment over the past five years, according to Gao Feng’s Russo, who estimates the government will devote another 63 billion yuan by 2020.

Funding Plan

The central government released a plan on Wednesday detailing funding for local governments to construct charging facilities, tied to the number of new-energy vehicles they sell.

Automakers will have to play by China’s rules if they want a piece of the market, even if they don’t believe in electric cars. The government has mandated the lowering of average fuel consumption to 5 liters by 2020, from 6.9 liters per 100 km this year.

“There is really no choice for the automakers, if they are required to meet the more stringent emission standards by 2020,” said Steve Man, an analyst with Bloomberg Intelligence. “Other technologies with the stringent emission standards won’t get you all the way to target.”